worksheets - connected strategy – connected strategy · at the same time, technology, especially...

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Siggelkow & Terwiesch

Connected Strategy (HBR Press, 2019)

© Siggelkow & Terwiesch (2019)

Overview• The fitness industry is going through a transformation driven by a combination of changing habits and technology• Consumers, especially millennials, are increasingly focused on health & exercise as a part of their overall wellbeing and

are willing to spend significant portions of their disposable income on staying fit• With the rise of social media, fitness regimens are now something to be shared, with achievements to be celebrated

and competition to be encouraged• At the same time, technology, especially in the form of wearables, is providing consumers with more data on their

bodies than ever before, a source that has yet to be tapped by most major fitness companies• Innovations in fitness has come thus far in a few forms

1. Signature workouts e.g., spinning (SoulCycle, Flywheel), hot yoga (CorePower), HIIT (Barry’s, CrossFit) provided through their own facilities. Emphasis on building community of believers

2. At-home connected devices e.g., Peloton, Tonal, Mirror – hardware that leverages technology to connect consumers to live instructors and other exercisers without the need to attend a class

3. Tracking apps e.g., Strava – allows users to build and track their own fitness regimen as well as connect with friends and compete

4. Virtual classes e.g., Aaptiv – provides live workouts without the hardware/ physical locations. Offers low cost, convenience relative to 1) and 2)

5. Boutique gyms e.g., Equinox – enhance the traditional fitness club experience with best-in-class facilities, activity-tracking app and signature boutique classes

ALITE Fitness – [will come up with a name]

ALITE Fitness is a nationwide chain of health clubs. Each club typically has facilities such as cardio machines and weights along with a number of instructor-led classes. Most locations also offer additional services e.g., personal training and some have additional facilities e.g., spa, steam room, pool, etc.

ALITE Fitness charges a monthly subscription fee of $60 a month. In the past, the gym made money based on a small number of active users within a wider subscriber base. However, as competition starts to grow, ALITE must increase its customer engagement to keep its subscribers from leaving. The firm has recently renovated many locations with new equipment and has launched a new website / app that allows users to log their workouts and book classes. However, the app is not integrated with any other fitness devices e.g., wearables or exercise machines, there are no particular initiatives to connect fellow exercisers and the app has limited relevance outside of the clubs themselves e.g., it is not integrated with customers’ overall health regimen


Chapter 3(Rewards of Connected Strategies)


Step 1: Diagnostic questions concerning your current connections with customers

Questions Answers

How often do you currently connect to your customers?

• High-usage customers (small %): daily / weekly when they use the facilities

• Low-usage customers (large %): only when payment is collected (automatic, monthly)

What kind of information do you receive about your customers’ needs?

• Feedback on equipment, condition of facilities (cleanliness, maintenance requests), requests for classes / schedule change

How does information flow from the customer to you? For instance, does the information flow rely on the customer taking the initiative, or does the information flow happen in more a continuous and autonomous manner

• No automatic information collected – comment boxes in each gym / one corporate email address for suggestions

• Users generally provide feedback directly to gym staff

How long does it take for a customer need to reach you?

• Feedback takes a long time to be addressed – no regular check-ins and changes take even longer to roll out nationwide

• Employees do not necessarily pass on feedback to managers / corporate in a systematic way

How long does it take for you to react once you have a customer need?

• Depends - local managers are only empowered to respond to certain customer requests

What do you learn each time a customer connects to your firm? How are you integrating these episodic interactions into a single connected experience for your customers?

• Feedback and how we respond (action taken, speed, communications) is not tracked systematically e.g., we cannot say we have addressed X% of suggestions / complaints in the last month


Step 2: Brainstorm the effects of a Connected Strategy could have for your organization

Questions Answers

How could you use this information to increase the willingness-to-pay of your customers?

• Provide personalized class schedules based on customers’ requirements (assessment of current weight/ fitness, exercise preferences, time/ location preferences)

How could you use this information to decrease your fulfilment costs?

• Optimize class schedules to ensure maximum utilization of facilities

Imagine a world in which customers could instantaneously communicate their needs to you. You are by their side as they go through life, anytime and anywhere. How would this increase in connectivity allow you to improve how you serve your customers? More specifically:

Questions Answers

How could you use this information to increase the willingness-to-pay of your customers?

• Figure out customers’ optimal exercise regime by syncing with fitness devices, calendars, food diary etc.

How could you use this information to decrease your fulfilment costs?

• Automate optimization of schedules for each customer based on a set of parameters

Next, imagine a world in which you know a customer need even before the customer knows this need itself.


Performance Fit Location Timing Usage cost over product

life

Maintenance cost over

product life

W i l l i n g n e s s t o P a y

Consumption Utility: How happy is the customer with the product or service?

Accessibility: How easy is it for the customer to get the product or service?

Cost of Ownership: How much does it cost for the customer to use and maintain the product?

Step 3: Start identifying drivers of willingness-to-pay

• High quality equipment

• Clean changing / shower facilities

• High quality instructors

• Sense of community / meet new people

• Needs to be convenient (near home / work) –mix of high-density urban / suburban locations

• Opening times and schedule of classes need to fit work / school schedules

• Types of classes (cardio, weight training, yoga etc.)

• Add-on facilities e.g., spa

• Fixed cost per month – usage cost decreases per visit if customers engage more

• n/a

Segmentation of needs -> exercise obsessives (self-motivators) vs. situational exercisers (need motivation/ community). Can we cater to all?


Step 4: Sketch the efficiency frontier for your industry that reflects the trade-off between willingness-to-pay and fulfillment costs

Willingness to pay

Fulfillment costs

High

Low

LowHigh

Personal training

SoulCycle

StravaAaptiv

Peloton

ALITE

Equinox

Company Reasoning

Personal training ($100/ session)

• 1:1 attention, full customization

SoulCycle ($40/ session)

• Fun engaging classes, sense of community

• Intense – maximize calorie burn

• High quality instructors

Equinox($200/m)

• High quality facilities• Flexible & varied class

schedule

Peloton ($40/m + hardware ($2-4k)

• High quality instructors / classes

• Competitive feel of a class mixed with at-home convenience

ALITE($60/m)

• Standard facilities, convenient locations

• Quality of classes mixed

Aaptiv($15/m)

• Convenient and on-the-go• No access to equipment

limits types of exercises

Strava($8/m)

• Simple tracking - relies on self-motivation to build and follow plan

Company Reasoning

Personal training • 1:1 (very limited capacity)

SoulCycle • Instructors are expensive• Max 40 per class (limited capacity)

Equinox • High facility fixed costs with high-touch facility maintenance• Instructors must be trained to teach variety of classes

ALITE • High facility fixed costs and instructor salaries

Peloton • Instructors have high salaries but unlimited class capacity• Hardware manufacturing and distribution costs

Aaptiv • Instructors have high salaries but unlimited class capacity

Strava • Low touch - mainly tech / eng. costs

Fulfillment costs

Willingness To Pay


Step 4: Sketch the efficiency frontier for your industry that reflects the trade-off between willingness-to-pay and fulfillment costs

Questions Answers

Where are you relative to the efficiency frontier?

Below – we have high fixed costs and yet our facilities are not premium / differentiated enough to justify a higher WTP

If you are not on the efficiency frontier, what efficiency improvements do you plan to pursue in order to reduce your fulfilment costs?

Improve technology – offer customers a more differentiated / customized experience by collecting data, automating certain processes e.g., recommendation engines for classes and reducing redundancies e.g., unpopular classes

Assuming you are on the efficiency frontier, do you feel that you are in the right spot on the frontier?

We need to find a niche - occupying the middle ground is dangerous because our product doesn’t cater to any of the customer segments well

What are the trends in your industry? Is there pressure on lowering costs or do you see your firm win over its rivals byproviding products and services with a higher willingness-to-pay?

Industry is bifurcating -> premium products with covetable brands but high cost to serve vs. mass tech platforms that are more scalable to large audiences / low cost

Are there new technologies that have allowed some of the firms already in the industry or potentially new entrants to push out the frontier? Do you see new business models breaking the trade-off between willingness-to-pay and fulfillment costs?

Yes - companies like Peloton are pushing out the frontier. They are replicating the competitive feel of a class while providing at-home convenience and lowering costs through technology (unlimited class capacity).


Chapter 6(Creating Connected Customer Relationships)


Latent need Awareness of need

Search for options

Decide on options

Order & pay Receive Experience good/service

Post-purchase

experience

C u s t o m e r J o u r n e yWhy does the customer engage in the interaction?

How does the customer go about identifying, ordering, and paying for the desired product?

What products and services are provided to the customer?

Step 1: Map the current customer journey of one customer experience

• Be healthy• Get fit

• Overweight – want to lose weight

• Social pressure to get fit?

• Pressure through magazines / social media

• Get suggestions from:

- Doctors- Celebrities/

influencers- Friends

• Free trials• Magazines• Social media

• Trial & error - experience of what works is very personal

• Request subscription online –usually receive an email from branch manager to discuss options

• Renewal of subscriptions is automatic

• Takes a few days to activate account

• Must travel to facility

• Initial setup - free fitness assessment, orientation session / tour of facilities

• Initial setup time depends on customers knowledge of fitness regimens

• Positive reinforcement loop –requires customers to continuously use facilities to work on fitness goals

Biggest risk of losing repeat customer engagement if they don’t get right user support,

encouragement, motivation etc.



Search for options

Decide on options

Order & pay Receive Experience good/service

Post-purchase

experience

W i l l i n g n e s s - t o - P a y D r i v e r s a n d P a i n P o i n t sWhy does the customer engage in the interaction?



Step 2: Identify customer willingness-to-pay drivers and pain points

• Everyone wants to be healthy – basic level of fitness

• Many fail to act -> too difficult, lack of knowledge, lack of motivation

• Search is costly -> overload of information & options

• Many competitors have more distinct brands than we do

• No easy way for customers to find what’s right for them

• Each customer must find personal balance of enjoyment, impact, convenience

• Difficult to verify impact as depends on each person’s diet, lifestyle and physique

• Choice often influenced by celebs / social media / branding

• Setup process is still currently manual –should be more automated

• Subscription renewal is automated

• Must travel to facility

• Avid exercisers can benefit straightway

• Steep learning curve for those who want to get fit but don’t know how -> requires personal exercise plan

• May not understand how to use all our facilities

• Initial joining fee & minimum contract lengths discourage people from quitting (although sometimes waived)

• Can speak to our staff for help but people may be embarrassed/ not sure how?


Latent need

Awareness of need

Search for options

Decide on options

Order & pay

Receive Experience good/service

Post-purchase

experience

I n f o r m a t i o n F l o w sWhy does the customer engage in the interaction?



Trigger

Frequency

Richness

Customer effort

Action by

ImprovementIdeas

Description of Information

Step 3: Capture the information flows for this customer experience

None

Customer

When customer wants to get fit

Low

High

Customer

Anticipate fitness needs based on lifestyle / goals (create common templates?)

None

Customer

Low

High

Prompts in advertising -> how can exercise help you? Do you feel sluggish etc.?

Customers’ basic desire to get fit. Basic info on goals

Customer

Low

High

Explain how they can achieve goals in simple terms with us vs. competitors

First time + at renewal?

Customers’ key purchasing criteria + WTP

Customer

Medium

High

Segment customers and target them separately with different messages

Credit card information

Customer

First time + monthly

Low

Low

Customer + us

Automate payment setup

Customer receives explanation of benefits + intro to facilities

Us

First time

Medium

Medium

Tailor onboarding process -> give expert users instant access, hand-holding for first timers

Customer feedback on our facilities/ services

Customer

Ad hoc

High

Medium - High

Automate feedback loop -> regular surveys, in-app feedback after each session

Whether customers are fulfilling goals

Customer

Ad hoc

High

Medium - High

Automatically initiate periodic check-ins –are they fulfilling goals?

Super rich info here but not being captured in systematic way


In the eyes of the customer, the purpose of the relationship with our firm is to…

Why

How

Step 4: Identify the deeper needs of the customer

Be healthy

Find a community of like-minded

people

Have funFulfill fitness goals

Track progress (in-app) +

integrate with other health

data

Build custom regimen to fit body, lifestyle and goals over

time

Create opportunities to bond and / or compete with others

Find variety of exercises that stay interesting

Share progress with

others virtually

Stay motivated


Step 5: Understand the current relationship with your customer across separate (repeated) customer experiences

Questions Answers

How do you identify the customer and connect him or her to prior customer experiences?

Personalized profile on website / mobile app

Is this identification requiring time and effort form the customer?

Initial setup required – basic information e.g., height weight, fitness goals, location/ time preferences. Thereafter, all details are saved. Visits and classes booked are saved

Is this identification costly to your firm? No – identification is via a barcode scan

What organizational incentives are in place (or what disincentives need to be removed) so that various parts of your organization share the information they have about a particular customer?

Customers have the ability to visit different locations nationwide -> how can we capture their feedback from each visit and share the insight across locations? We currently track visits but no other information

A) Identify the customer and retrieve data

Questions Answers

How do we improve customization for a particular customer based on information that we have gathered about this customer?

Use location + time data to automatically generate suggested schedules; allow users to connect data from wearables for personalized goal-tracking

What feedback do we gather from the customer to understand whether a particular solution worked well?

Right now, just ad hoc surveys

Can the customer make direct suggestions to us of how to improve our product or service?

Only to staff at each facility – need to introduce this into the app so it goes straight to corporate

B) Customization


Step 5: Understand the current relationship with your customer across separate (repeated) customer experiences

Questions Answers

How do we currently use population (or market-segment) level data to improve our product assortment?

Basic segmentation of gym users to decide how many of each type of equipment to buy, classes to schedule etc.

How do we currently use population (or market-segment level data to refine features of existing products?

n/a

How do we currently use population (or market-segment level data to create entirely new products?

We may respond in ad hoc ways to local competitors and offer similar classes e.g., hot yoga

C) Population-level insights

Questions Answers

At what level in the Why-How ladder are most of our transactions currently taking place?

At the how level – we provide products (facilities) and services (classes) although we’ve set up some infrastructure to fulfil why e.g., share progress

What would be alternative value propositions to the customer that are either more focused (HOW) or broader (WHY)?

There are apps that allow customers to integrate their data and establish their own plan (expert users). There are more boutique offerings that help amateurs define their broader goals and craft a pan to get there.

D) Why-How ladder questions



Search for options

Decide on options

Order & pay Receive Experience good/ service

Post-purchase

experience

Curated OfferingCoach

Behavior

Automated Execution

Respond-to-Desire

R e s p o n s e s t o P a i n P o i n t s

R e q u i r e d I n f o r m a t i o n

Step 6: Identify new opportunities associated with connected relationships

Anticipate fitness needs based on lifestyle / goals – integrate data from wearables, phone, food apps etc.

Prompts in advertising -> how can exercise help you? Do you feel sluggish etc.?

Explain how they can achieve goals in simple terms with us – create simple plans aligned to certain goals

Segment customers and target them separately with different messages

Automate payment setup

Automate feedback loop -> regular surveys, in-app feedback after each session

Automate check-ins with customer –are they fulfilling goals?

Automate account setup / confirmation process

Adapt class schedules, facilities layouts etc. to feedback

Use feedback to think of new offerings, anticipating new needs


Experience 1 Experience 2 Experience 3 Experience 4

Customization Improvements

Optimization of Product and Service Offering

Creation of New Products and Services

Efficiency Improvements

Fulfillment of deeper customer needs

Step 7: Find ways to utilize information gathered from repeated interactions to improve the Recognize-Request-Respond cycle

- Capture information from personal wearables to understand customer’s fitness + progress- Integrate with customer’s calendar and enable location services to suggest nearest facilities / available workouts- Allow customer to share their progress with friends and see their progress

- Based on overall demand, optimize class schedules to ensure maximum utilization- Ask for feedback after every class to ensure exercises are pitched at the right level/

helping people reach their goals- Create a competitive league to challenge users to compete against each other

- Offer new classes based on customer feedback – what they want to work on, what length of time they want to work out etc.

- Automate all payments in-app – saved credit card details are more secure, no cash handling, all data is captured

- Create a customized exercise regime that works for each person’s body

- Stay motivated through new/ varied exercises and community support

- Have fun with others and create a sense of community

User creates exercise plan with personal trainer –info is captured in app

User books classes that will help her achieve her goals and shares progress with friends

User takes part in fitness challenge and achieves a personal best

User meets with trainer again to update goals and exercise plan


Step 8: Assess your data-protection policies to maintain trust with your customers

Questions Answers

What procedures do we have in place to stay informed about data protection and privacy regulations in all the geographies in which we are active?

Legal department ensures we’re in keeping with data regulations and update our terms and conditions for customers

How do we keep up with how public opinion is changing with respect to these issues?

Monitor changes in regulation / media – always make new data requests opt-in vs. default

How do we currently obtain customer consent? How transparent is it to our customers what happens to their data?

Customers are asked for permission when setting up their profile – we inform them it’s used to help improve their experience and not shared with other parties

What do we do to keep the data current and accurate?

Currently up to customers to keep their data up to date

What are our activities to keep the data safe and under what conditions do we notify customers of any breaches?

We employ standard encryption and anti-hacking protections –as we collect more personal health data, we should look into strengthening those defenses (any data breach would be extremely damaging to us)

Chapter 10(Creating Connected Delivery Models)


Connected Producer

Connected Retailer

Connected Market Maker

Crowd Orchestrator

P2P Network Creator

Respond-to-Desire

Curated Offering

Coach Behavior

AutomaticExecution

20

Step 1: Use the Connected Strategy Matrix to map your own activities and the activities of your competitors

ALITE

Equinox

ClassPass StravaAaptivSoulCycle

Nike Run Club

Peloton


Connected Producer

Connected Retailer

Connected Market Maker

Crowd Orchestrator

P2P Network Creator

Respond-to-Desire

Curated Offering

Coach Behavior

AutomaticExecution

21

Step 2: Use the empty cells in the Connected Strategy Matrix to create new ideas

Suggest classes that fit with schedule if not on track to hit goals for the week

Sell healthy food, meal kits, sleep aids, workout clothes etc. that are complement lifestyle

Integrate with social network profiles –allow users to share workout plans + schedules + tips

Partner with local gyms and workout classes in cities with no location and automatically suggest workout times when person enters town

Connect users with virtual instructors when they’re travelling and don’t have time to go to the gym

Current position

Automatically adjust exercise schedule + food plan based on progress in week + location + calendar -> substitute for other options (provided by partners) if user is away from our facilities

Create competitions between friend groups / leagues to see who’s doing better


Show selective workouts of people who have devised plans that work well (user can vote)

Step 3: Understand your existing revenue model, identify its main limitations and consider alternatives for your current activities as well as for the ideas created above

Questions Answers

What does the customer pay for? Access to gym equipment / classes

What are your different revenue streams? Gym subscriptions, purchases in café, personal training fees, spa services

Who is paying? Customers

When does payment occur? Every month for subscriptions, every visit for other ad hoc charges

Questions Answers

Next, look for inefficiencies in your revenue model. Do you use this revenue model because you believe it is the right one, or are you constrained by connectivity to the customer?

Subscriptions are the most efficient method of collecting payment and ensuring returning customers but it reduces the imperative to collect information on the customer each time or measure engagement

Now that you understand the current revenue model, consider ways for considering these inefficiencies

- Use data to understand what customers value as ‘basic’ and should be included in the subscription- Understand the marginal value of add-on services- Bundle features that customers want for the base package and unbundle products that customers put additional premium on


Recognize Request Respond Repeat Connection Architecture

Revenue Model

Become aware of the need

Search and decide on

option

Order Pay Receive Experience After sale Learn and improve

Connect parties in

ecosystem

Monetize customer

relationshipSense

Transmit

Analyze

React

Step 4: Deconstruct your Connected Strategy into technological sub-functions and then catalogue currently used technological solutions for each sub-function

Verify # of check-ins

made against weekly goal. Transmit to profile and compare to location data Figure out

location of user and

understand closest, most

convenient options. Adjust schedule

Suggest changes in diet plan if information is also integrated and adjust food

orders

Idea 1: Become a fully-integrated healthcare manager –automatically adjust exercise schedules and eating plan based on variety of connected data inputs

Send user new

schedule

Determine if user

followed new plan

Prompt to follow / ask

what’s different that week

Understand if behavior change is temporary (travel) vs. long term (loss of

motivation)Ask if their goals have changed and devise new

plan if required

Connect user to partners that can better serve their needs

when our facilities are not available based on their

location, schedule,

etc.

Ask customers to pay

additional subscription

fee for automatic health plan rebalancing – dynamic

and maximum convenience

Monitoring and

readjustment happens on a

weekly / daily basis as user chooses

Periodically survey user on how well the schedule is rebalanced


Recognize Request Respond Repeat Connection Architecture

Revenue Model

Become aware of the need

Search and decide on

option

Order Pay Receive Experience After sale Learn and improve

Connect parties in

ecosystem

Monetize customer

relationshipSense

Transmit

Analyze

React

Step 5: Identify new technological solutions and how those might enable further innovations in your Connected Strategy not identified so far

Full integration

with wearables & healthcare

data

Recommendation engine with

optimal solutions based on user preference that incorporates all available options

Measure real-time reactions e.g., heart rate, calorie

burn –machines

automatically adjust speed / resistance to allow you to meet your goals

Integrate with health records and automatically devise exercise plans to help customers achieve health goals e.g., recommended weight loss to get to healthy BMI. Monitor performance in real time through wearables and adapt plan accordingly


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